Hard or Soft: Does it matter? Michael Lyons Manager, Strategic Analysis and Research

STPR Services Strategic Analysis –Commercial –Scenarios/ Futures Conceptual Models Computer Simulations –Spreadsheet –System Dynamics –Agent-based models –Game theory

The Change Process Sensing the need for change Exploring possible change strategies Deciding change strategies Planning & Implementing change Consolidating within organisation Become common practice in many organisations Strategic Models Change Process

Why do models fail? Developed after decision made (ex post justification) Internal vs. external validity Multiple, ill-defined objectives Model as solution to problem – jumping to conclusions

Approaches to Planning Rationalists - find optimum strategy –Planning –Forecasts Evolutionists - strategies emerge. –Complex world –Political processes –All rational processes irrelevant Processualists - intermediate. –Future uncertain, but not entirely unpredictable –Scenario planning –Computer simulations: explore options

Types of Models Hard Soft Financial Optimisation Forecasting Regressions Exploratory Flight simulators Business games Conceptual models

Exploratory Models Conceptual models –clarify concepts/ relationships –common language –represent (shared) mental models Simulations –Quantify the conceptual models –Reveal importance of different processes –Outcomes

The Future Information Industry: ETSI SRC6 Model end user info broker info provider service provider service broker info owner application creation information creation support telecommunications service provision communication and networking of information information processing and storage service provision terminal equipment supply

Simulations Flight Simulators –stand-alone –key variables Business Games –competitive –multiple strategies

Strategy Pursuing a goal/ vision Planning Inventing the future Preparation Decision-taking Action Adapting to change Environmental monitoring Spotting the weak- signals Position Conversation Organisational learning/ capabilites Decision-taking Action

Decision-making in a complex world: non-rational but not irrational Rational decision-making: –Rationality, bounded rationality: –Optimisation, sufficing Real decision-making –Role of emotion –Business strategy Planning Vision, ethics, culture –Experience: rule of thumb –Habit/ tradition: learned behaviour –Gut feeling Why OR? –Improve decision-making –Need both soft and hard

changing business environment recognised strategic issue executive debate & dialogue strategy for change knowledge base mental models assumptions maps & diagrams dynamic simulation models Simulations Managing Complexity

Procedural intelligence Setting Boundaries Choice of Frames Problem Structuring (within frame) Interpreting Structure Assigning referents Defining Vision; defining problem Analysis (SSM, SODA, CM, scenarios planning) Conceptual models; Influence diagrams Exploration of conceptual model - alternative scripts. Simulations Data (market surveys etc.)

Why Simulations?: Cognitive problems Issues –Most people deal with only 3-4 variables at a time, and only through 1-2 time steps (de Guess). –Effect of interdependence –Effect of delay Simplifying assumptions –Single cause/ effect –No delays –Systems simple/ independent Need simulations –Quantitative results –Reveal importance of different processes –Outcomes

Exploring the Future: Scenarios Present Alternative Futures Scenario 1 Scenario 2 Driving Forces Uncertainty

Scenarios Planning & Modelling

Models: a Process not an End What is the question? Analysis Conceptual model Construct Simulation Investigate What-ifs Modelling team Customer Workshop

Benefitting from the Model Identify the problem Build the model with the customer Involve as many parties as possible Diagrams help identify conflicting views Where data missing get expert advice –base case Flight simulator: test by doing what-ifs

Hard or soft: does it matter? Yes and no. Armed camps or Complementary Different purposes/roles: procedural levels Soft comes first? Better seen as a spectrum? What are the bridges: –Model building seen as a process, not an end –Exploratory models –Complex (adaptive) systems and complexity theory –People: intermediaries –Evidence-based policy-making? What is better decision-making? –What is OR for? –Outcomes & Values –Utilitarianism vs conviction